To “whip inflation now,” the Federal Reserve Bank helmed by
Chairman Paul Volcker began to raise interest rates, eventually
driving the prime rate from 12 percent to 21 percent.

By 1980, this had precipitated a far deeper downturn, which did
lower inflation, but only by driving up unemployment to levels
not seen since the Great Depression of the 1930s.

The recession Volcker engineered in the US had an even more
devastating impact on Mexico, as the interest rate on rolling
over its short term loans nearly doubled.

By 1982, simply meeting interest payments would have required
more than $8 billion per year. Worse, just as expenses soared,
oil prices sagged.

Mexico made clear it could no longer make its interest payments.

US banks were terrified. Thirteen of the biggest stood to
collectively lose $60 billion if Mexico went under — 48 percent
of their combined capital.

And if Mexico fell, most of Latin America would come tumbling
down behind it, likely triggering a collapse of the entire
international financial system. The United States, accordingly,
put together a multi-billion-dollar package of loans and credits,
and worked out an unofficial debt moratorium.

The World Bank and IMF were wheeled in to provide Mexico with
emergency loans with which to resume paying the US banks,
rescuing them from their own recklessness. These institutions in
turn — following the model first worked out in New York’s
fiscal crisis in 1975 — now imposed “structural adjustment” on Mexico.

Three
boys in the street read a newspaper announcing better salaries
for Mexican workers November 16, 1993 as Mexico anxiously awaits
the outcome of a crucial vote in the US congressional session on
the North American Free Trade Agreement.Reuters

The creditors demanded privatization of public services, cuts in
government social programs, a wider opening to foreign
investment, and a ruthless concentration on paying back loans and
interest. This arm-twisting was given an ideological gloss,
reviving hoary shibboleths about the inherent superiority of
market over state, repackaged as “neoliberalism.”

Executing these demands fell first to President de la Madrid and
then to his successor Carlos Salinas de Gortari (1988–1994). Both
believed the state apparatus was a burden upon Mexican business
that should be thrown off, along with much else in the
Partido Revolucionario Institucional (PRI) inherited
project and ideology. Structural adjustment prompted
privatization, the opening of the country to foreign investment,
and the reorientation of the agricultural sector towards exports.

Mexican
President Carlos Salinas de Gortari waves to the crowd after he
gave his 6th State of the Nation address before the Mexican
Congress, November 1, in Mexico CityReuters

The 1980s were known as la Década Perdida, or “lost
decade,” wherein 800,000 jobs evaporated and dispossessed farmers
streamed into urban centers.

Salinas continued the policies, selling off large public
enterprises at bargain basement prices. The process created a new
class of Mexican tycoons. In 1987 there was one Mexican on the
Forbes billionaire list. When Salinas left office in 1994 there
were twenty-four.

Labor, conversely, was battered. When public enterprises were
privatized their collective agreements were scrapped, benefits
removed, “flexible” work rules imposed. Salinas also distanced
the party from its long-affiliated labor unions, and ordered a
series of attacks on more militant entities.

Various
unemployed Mexicans offer their skills as handymen, fixing
everything from light bulbs to toilets, by Mexico City's
Metropolitan Cathedral October 30, 1995.Reuters

At the same time, state subsidies that had kept the price of
basic foodstuffs low were suddenly removed. The price of milk,
tortillas, petrol, electricity and public transport shot up at
the same time wages were being slashed. The provision of basic
social services was similarly cut so that fewer people had access
to free health care and education.

The neoliberal offensive was particularly devastating to farm
labor, partly as a consequence of the establishment of the
North American Free Trade Agreement (NAFTA)
(which Salinas negotiated with George H. W. Bush, and which went
into effect under Bill Clinton).

A principal US condition for entering the agreement was that
Mexico undo the agrarian reforms embedded in Article 27 of the
Constitution, a principal legacy of the Revolution. Communal land
could now be divided and converted into private property. Price
regulation of staple crops was scrapped. Tariffs and quotas on
agricultural imports were removed. Subsidies that had supported
small-scale farmers were deleted.

US
President George H. Bush offers a toast to his host, Mexican
President Carlos Salinas during a luncheon in Monterrey on
November 27, 1990.Reuters

The results of establishing a putatively equal trade between
grossly unequal partners was that US agribusiness pushed
thousands of Mexican farmers out of their own markets.

The price of corn dropped by around 50 percent after the NAFTA
agreement, and the number of farmers living in poverty rose by a
third. In the six years following the introduction of NAFTA, two
million farmers abandoned their land. They flocked from country
shacks to the burgeoning barrios of Mexico City; to the spreading
slums of Tijuana and Ciudad Juárez to work in factories across
the border.

US
Customs canine inspectors walk through long lines of drivers
waiting to pass through the US/Mexico border crossing at San
Ysidro, California on March 19, 2003.Reuters

The crisis transformed the narcotics industry.

Indeed it is impossible to understand the tremendous changes in
the drug business during the combined sexenios of Salinas and
Zedillo (1989–2000) without taking into account the massive
political, economic, and ideological transformations wrought
during that decade and the previous one by the PRI-governed
state.

Farmers, unable to sustain themselves due to the removal of
subsidies and the arrival of competition from US
agri-corporations, found the burgeoning market for marijuana and
poppies their only avenue to surviving on the land. The army of
the urban unemployed gave the cartels a deep pool from which to
recruit foot soldiers, and the miserably paid (and eminently
corruptible) police and military provided the muscle with which
to protect their interests.

Mexican
soldiers destroy a marijuana plantation in the Apatzingan
mountain range in the central-west state of Michoacan on October
4.Reuters

The spread of everyday crime — aided by the rapid declension and
corruption of local police forces — demoralized civil society,
and provided a climate within which grander forms of criminality
would flourish.

The adoption of free trade, and the deeper integration of the
Mexican economy with that of the United States, dramatically
increased cross-border traffic, making it far easier to insert
narcotics into the stream of northward-bound commodities.

Some NAFTA rules were of
particular help: because factory workers were exempt from tariffs
and subject to only minimal inspections, Mexican smugglers began
buying up such factories to use as fronts for shipping
cocaine.A
Mexican soldier stands guard as over one ton of Colombian cocaine
goes up in smoke on the Carribean island of Cozumel in the
southern Mexican state of Quintana Roo February 27,
1997.Reuters

Narcotrafficking had formerly
been integrated into the PRI corporatist state, an
under-the-table equivalent of labor, peasant, and business
organizations. As such it was subject to a certain degree of
regulatory control, and to unofficial taxation, in return for the
de facto licensing of smuggling.

The state’s abandonment of this form of corporatist inclusion
contributed to the independent growth and power of organized
crime syndicates.

A
drug tunnel that the U.S. Customs discovered in Nogales, near the
US-Mexican border, is seen in a picture taken February 26,
2001.Reuters

The glorification of wealth and entrepreneurialism provided a
cultural environment that boosted the social standing of narco
businessmen.

As in the former Soviet Union and other post-communist regimes, a
neoliberal shock treatment simultaneously produced millionaires
and gangsters, a twinning that Forbes registered by including
them on the same list.

A
soldier carries blocks of cocaine to a pile for incineration at a
naval base in Matamoros, in Tamaulipas state April
29.Reuters

The weakening of the state and the glorification of “free
enterprise” conferred authority and legitimacy on the private
sector in which drug traffickers were now key players. As Peter
Watt and Roberto Zepeda have argued, neoliberals prioritized
accumulation of profit over social welfare, ruthless competition
over cooperation, and the sanctification of private property and
wealth over community and civic responsibility.

These propositions — the cornerstones and guiding principles of
free-market ideology — also formed the dominant ideology of crime
syndicates.